In February of this year, the Indian government announced their intention to launch a Central Bank Digital Currency, and in October, the Reserve Bank of India published a paper proposing a phased pilot of a Central Bank Digital Currency.
News in a Glimpse:
- The Reserve Bank of India published a paper proposing a phased pilot of a Central Bank Digital Currency, claiming that the country is now at the beginning of its journey toward currency evolution.
- The Reserve Bank of India has issued a “concept note” outlining the rationale for the implementation of the Central Bank Digital Currency and how it will be tested in stages.
- The e-rupee will also be used as a cryptocurrency substitute.
- The Reserve Bank of India plans to conduct limited pilot launches of the e-rupee as a form of currency in addition to paper money in the country.
The Reserve Bank of India published a paper last Friday, October 7, which proposes a phased pilot of a Central Bank Digital Currency.
The outline of India’s central bank’s vision for the digital version of the rupee, dubbed “e-rupee,” has reportedly been highlighted.
They have published a “concept note” in which they explain the rationale for the implementation of the Central Bank Digital Currency as well as how it will be tested in stages.
Reserve Bank of India’s Plan on the Digital Rupee
The Indian government announced their intention to launch a Central Bank Digital Currency in February of this year. They claim that this technological innovation will provide a significant boost to their country’s economy.
According to a report, the country is under pressure following the successful release of the China’s Central Bank Digital Currency, which is reportedly steadily expanding and has even sparked a debate among legislators in the United States about whether the success of the China’s Central Bank Digital Currency threatens the dollar’s supremacy as the world’s reserve currency.
Aside from the United States, India appeared to be inspired by the success of China’s Central Bank Digital Currency. According to the Reserve Bank of India’s paper, Central Bank Digital Currencies appear to be a very promising invention and are considered an evolutionary progression of sovereign currency.
According to the paper, the country is now at the start of its journey toward currency evolution, which will fundamentally alter the nature of money and its functions. According to the paper, the e-rupee will also be used as an alternative to cryptocurrencies. The Reserve Bank of India intends to roll out limited pilot launches of the e-rupee as an additional form of currency issued alongside paper money in the country.
Because the use of cryptocurrencies is deemed to be regulated, their very nature is said to pose risks to India’s financial and macroeconomic stability. Whereas the country’s central bank claims that this demonstrates the need for a Central Bank Digital Currency, the nature of cryptocurrency removes the government’s ability to determine and regulate monetary policy.
The central bank went on to say that the Central Bank Digital Currency protects consumers by avoiding the negative social and economic consequences of private virtual currencies while still providing them with the benefits of virtual currencies.
E-Rupee Versions
The Central Bank of India is said to be planning the release of two versions of the Central Bank Digital Currency. Users would use the first version in everyday transactions such as making retail payments. The second version is said to be geared toward the settlement of bank transfers and wholesale transactions.
Regardless of the version, the Reserve Bank of India claims that the Central Bank Digital Currency will potentially improve the efficiency, robustness, and trustworthiness of payments. The Reserve Bank of India recognizes that these Central Bank Digital Currencies are desirable for small transactions to be as anonymous as using cash, but they claim that providing privacy will be difficult.
The central bank stated that the Central Bank Digital Currency is unlikely to match the levels of anonymity and privacy currently available with physical cash because these Central Bank Digital Currencies have the potential to facilitate shadow economy and illegal transactions.
The Nature of E-Rupee
According to reports, the e-rupees will be transferred to the general public using a token-based system. If the user wishing to send or transfer the digital currency has or knows the recipient’s public key, which is a type of digital address, the transfer will take place.
The transfer will be successful if the recipient’s private key, which is said to be a unique password in addition to the public one, is used. The Reserve Bank of India’s concept note states that unique tokens based on agreed-upon techniques would need to be created, which is said to be slightly resource-intensive.
Transactions with the Central Bank Digital Currency, like cash money, are said to be partially anonymous. Whereas higher-value transactions must be disclosed, lower-value transactions can remain anonymous.
The Reserve Bank of India is opposed to e-rupee earning interest because it would allegedly have a negative impact on India’s financial and banking system. Users may convert their withdraw cash from banks to digital form if the e-rupee can earn interest, according to the Reserve Bank of India.
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